Income Tax Act (R.S.C., 1985, c. 1 (5th Supp.))

Marginal note:Branch interest tax

• 218.2 (1) Every authorized foreign bank shall pay a tax under this Part for each taxation year equal to 25% of its taxable interest expense for the year.

• Marginal note:Taxable interest expense

  (2) The taxable interest expense of an authorized foreign bank for a taxation year is 15% of the amount, if any, by which

  • (a) the total of all amounts on account of interest that are deducted under section 20.2 in computing the bank’s income for the year from its Canadian banking business

  exceeds

  • (b) the total of all amounts that are included in paragraph (a) and that are in respect of a liability of the bank to another person or partnership.

• Marginal note:Where tax not payable

  (3) No tax is payable under this Part for a taxation year by an authorized foreign bank if

  • (a) the bank is resident in a country with which Canada has a tax treaty at the end of the year; and

  • (b) no tax similar to the tax under this Part would be payable in that country for the year by a bank resident in Canada carrying on business in that country during the year.

• Marginal note:Rate limitation

  (4) Notwithstanding any other provision of this Act, the reference in subsection (1) to 25% shall, in respect of a taxation year of an authorized foreign bank that is resident in a country with which Canada has a tax treaty on the last day of the year, be read as a reference to,

  • (a) if the treaty specifies the maximum rate of tax that Canada may impose under this Part for the year on residents of that country, that rate;

  • (b) if the treaty does not specify a maximum rate as described in paragraph (a) but does specify the maximum rate of tax that Canada may impose on a payment of interest in the year by a person resident in Canada to a related person resident in that country, that rate; and

  • (c) in any other case, 25%.

• Marginal note:Provisions applicable to Part

  (5) Sections 150 to 152, 158, 159, 160.1 and 161 to 167 and Division J of Part I apply to this Part with any modifications that the circumstances require.